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Detroit Free Press Staff Writer

The move would put Attorney General Bill Schuette at legal odds on at least one aspect of the city's bankruptcy with the administration of Gov. Rick Snyder, a fellow Republican who hired Orr and has defended bankruptcy with steep cuts for unsecured creditors — including pensioners — as the only way to restore Detroit to solvency. / 2010 photo by Kathleen Galligan/Detroit Free Press

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Taking an opposing side to Gov. Rick Snyder and Detroit emergency manager Kevyn Orr, Michigan Attorney General Bill Schuette said Saturday that he will defend the state’s constitutional protection of public pensions in the Motor City’s historic bankruptcy filing.

Invoking his role as “the people’s attorney,” Schuette said he will file in U.S. Bankruptcy Court in Detroit on Monday to intervene in the city’s federal bankruptcy proceedings, even after his office opposed efforts in a state court earlier this month to halt the bankruptcy filing in challenges brought by pensioners and lawyers for the city’s pension funds.

“The City of Detroit’s bankruptcy will cause even greater hardship for many people in southeast Michigan who are already struggling,” Schuette said.

Schuette said he will intervene “on behalf of southeast Michigan pensioners who may be at risk of losing their hard-earned benefits,” in accordance with his responsibility as attorney general to defend the Michigan Constitution.

The move would put Schuette at legal odds on at least one aspect of the city’s bankruptcy with the administration of fellow Republican Snyder, who hired Orr and has defended bankruptcy with steep cuts for unsecured creditors — including pensioners — as the only way to restore Detroit to solvency.

Schuette noted that Orr has not detailed the type of cuts he intends to seek from Detroit’s two pension plans, but Orr has said the city doesn’t have money to pay $3.5 billion in underfunding in the two plans that provide retirement pay to about 20,000 people. Pension plan officials bitterly dispute the underfunding levels.

“Michigan’s constitution, Article 9, Section 24, is crystal clear in stating that pension obligations may not be ‘diminished or impaired,’ ” Schuette said.

However, “equally staggering is the financial uncertainty of pension benefits relied upon by Michigan seniors living on fixed incomes and anticipating a safe and secure retirement after a lifetime of work,” he added. “Retirees may face a potential financial crisis not of their own making, possibly a result of pension fund mismanagement.”

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Schuette said he will tell federal Judge Steven Rhodes, who is assigned the bankruptcy case, that “Michigan residents live under a constitution that protects hard-earned pensions.” He noted that no court action has begun specifically related to pensions, but by filing an appearance, he “will be able to defend the state constitution if and when this does occur.”

Illustrating the complexity of the position Schuette’s office faces, just over a week ago, he filed an appeal to the Michigan Court of Appeals after an Ingham County judge’s ruling that Detroit’s bankruptcy filing violated the state’s constitution and therefore should be withdrawn.

Fighting for competing interests isn’t uncommon for the state Attorney General’s Office. For one, the office regularly represents Michigan’s utility consumers while representing state regulators who set utility rates that consumers pay. The duties are divided among state lawyers, with attention paid to keeping a wall between opposing sides to prevent potential conflicts of interest.

“The attorney general will continue to represent the governor, the state and state agencies in the bankruptcy proceedings,” Schuette spokeswoman Joy Yearout said Saturday.

Because the bankruptcy filing is still in its beginning stages, much remains unknown about what Schuette will have to do as the state’s top legal officer, Yearout said. “But the AG will be representing both of those sides aggressively. Different sets of attorneys will represent them.”

Rhodes sided with Orr’s legal team last week in a ruling that consolidates the entire case into his court, putting a halt to state court actions. Rhodes did not rule on the validity of the pensioners’ arguments that Michigan’s constitution prevents a bankruptcy filing authorized by the state and Snyder.

Many bankruptcy experts said that Detroit’s bankruptcy could force a fundamental court showdown that could establish, as Orr has argued, that federal bankruptcy laws trump state protection of pensions.

Orr spokesman Bill Nowling said in a statement Saturday that Orr “respects the attorney general’s concern for Detroit’s pensioners. This is an important issue that will be decided, appropriately, by a federal bankruptcy judge. The emergency manager plans to establish the city’s eligibility to file for Chapter 9 bankruptcy protection and then move as swiftly as possible to propose a plan of adjustment that will help create a strong and viable Detroit and will enable the city to provide essential public services to its 700,000 residents.”

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Sara Wurfel, a spokeswoman for Snyder, said the governor’s office recognizes “that this is an important issue, and we appreciate efforts to get clarity and help determine the best path forward that respects and is fair to pensioners and all parties.”

Robert Gordon, a lawyer for the Clark Hill law firm who represents the city’s Police and Fire Retirement System and General Retirement System in bankruptcy proceedings, said Saturday he couldn’t comment extensively on Schuette’sannouncement until the attorney general files papers in federal court.

However, Gordon said, “We would welcome the AG’s support for upholding the constitutional protection of accrued pension benefits and would hope he will defend them vigorously.”

Bruce Babiarz, a spokesman for the police and fire pension, said much the same, and that lawyers for the system would review Schuette’s paperwork in the case once it’s filed.

University of Detroit Mercy Law School professor Larry Dubin noted that Schuette is “the highest legal officer in Michigan.”

“Unlike most states, Michigan’s constitution protects the rights of people who work for a governmental entity (e.g. the City of Detroit) to not have their pensions or retirement systems diminished,” Dubin said in an e-mail. “I applaud the attorney general’s intended legal action to protect the citizens of our state who rely on their constitutional protections guaranteed by the State of Michigan.”